US factory activity slows

[WASHINGTON] US manufacturing activity slowed in July amid signs that a robust economy and import tariffs were putting pressure on the supply chain, which could hurt production in the long term.

Other data on Wednesday showed private employers stepped up hiring in July, suggesting the labor market remained robust at the start of the third quarter.

The Institute for Supply Management (ISM) said its index of national factory activity fell to a reading of 58.1 last month from 60.2 in June. A reading above 50 in the ISM index indicates an expansion in manufacturing, which accounts for about 12 per cent of the U.S. economy.

"Demand remains robust, but the nation's employment resources and supply chains continue to struggle," said Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee.

"Respondents are again overwhelmingly concerned about how tariff-related activity, including reciprocal tariffs, will continue to affect their business."

President Donald Trump's "America First" trade policy has left the United States embroiled in tit-for-tat tariffs with its major trade partners, including China, Canada, Mexico and the European Union. Mr Trump claims the United States is being taken advantage of by its trade partners.

Analysts have warned that import duties could disrupt supply chains, undercut business investment and potentially put a brake on strong economic growth. The signs of rising capacity constraints could draw the attention of the Federal Reserve, which is wrapping up a two-day policy meeting on Wednesday.

The US central bank is expected to leave interest rates unchanged on Wednesday after increasing borrowing costs in June for the second time this year. The Fed has forecast two more rate hikes by the end of 2018.

While the ISM's supplier deliveries sub-index dropped 6.1 points to 62.1 last month, the reading remained high after racing to a 14-year high of 68.2 in June. Economists say the trade tensions, the robust economy, marked by labor shortages and strong domestic demand, are behind the delivery delays.

The economy grew at a 4.1 per cent annualized rate in the second quarter, the fastest in nearly four years and double the 2.2 per cent pace logged in the January-March period. The labour market is considered to be near or at full employment, with the jobless rate at 4.0 per cent.

REUTERS